Oil prices fall 1% to a two-week low on US recession concerns

NEW YORK: Oil prices slipped about 1% to a two-week low on Thursday (March 9) as the US Federal Reserve (Fed) may go too far in raising interest rates to control inflation, leading to a recession and the future oil prices could reduce demand.

The US Federal Reserve uses higher interest rates to reduce inflation. But these higher interest rates raise the cost of borrowing for consumers, which can slow the economy.

“The Fed keeps coming… because of inflation, and that’s fueling fears of lower oil demand down the road from a possible recession,” said John Kilduff, partner at investment consultancy Again Capital LLC here.

Brent futures fell $1.07, or 1.3%, to $81.59 (RM368.94) a barrel, the lowest close since Feb. 22. West Texas Intermediate (WTI) U.S. crude fell 94 cents, or 1.2%, to $75.72 (RM342.48), its lowest close since February 27.

This caused both benchmarks to fall for the third straight day, with WTI down around 6% and Brent down around 5% over the period.

The number of Americans filing new jobless claims rose the most in five months last week, but the underlying trend remained consistent with a tight job market.

“Slowing growth continues to weigh on crude oil prices,” said Edward Moya, senior market analyst at data and analytics firm Oanda.

The Fed’s renewed hawkish stance is urging investors to explore how a “longer-higher” interest rate regime could weigh on US stocks, with some market observers saying the combination of higher bond yields and stubborn inflation bodes badly for stock returns.

Kilduff noted that Thursday afternoon’s US bond auction “spooked the market” and was “the catalyst for risk-off sentiment” for the oil and stock market declines.

Crude oil futures and Wall Street stocks both traded higher Thursday morning on expectations that US unemployment numbers could lead the Fed to slow the pace of future rate hikes.

Wall Street stocks fell on Thursday, with all three major stock indexes falling, as investors feared a jobs report on Friday could trigger aggressive rate hikes by the Federal Reserve.

TotalEnergies also supported oil prices earlier on Thursday and was unable to make shipments from its French refineries due to ongoing strikes, a day after data showed an unexpected drop in US crude inventories last week.

“The suspension of deliveries by TotalEnergies’ French refineries due to the nationwide strikes, combined with the slight weakness in the dollar, may attract some short sellers to cover part of their positions,” oil brokerage PVM’s Tamas Varga told Reuters. – Reuters